Clients sold their rental home within the personal home exemption period for exempting capital gains. Shouldn't they have to pay taxes on the recaptured depreciation?

[utah-arizona-taxlady]

They lived in it first, then it has been a rental property since.  They fall within the exemption time frame to exempt the capital gains but the depreciation is not carrying over to Sch D.  Should it?

[TaxGuyBill]

First, can you confirm that the *IS* a gain?

Where are you reporting it?  Are you entering the sales information on the Asset Entry Worksheet in the rental section?  Or are you filling out the Home Sale Worksheet?  Or something else?


As a side note, it is not "recaptured" depreciation.  The gain and resulting tax on the sale of real estate is called "Unrecaptured Section 1250 Gain".

[utah-arizona-taxlady]

TaxGuyBill.  Thank you for correcting that for me.  I tried first entering the sales info on the asset Entry worksheet but I couldn't see anywhere to exempt the gain.  So, I did it on the Home sale Worksheet.  I was sure that they would have to pay the taxes on the Unrecpatured Section 1250 Gain (depreciation they took) and it shows up but is not transferring to the Sch D.  Then I thought...well, maybe they don't....but thought I better check with you guys.

[TaxGuyBill · Accepted solution]

Have you entered the depreciation on Line 30 of the Home Sale Worksheet?  Is Line 7 of that worksheet showing a Gain?  It is working for me.

For future reference, you can enter the sales information on the rental's Asset Entry Worksheet, then "link" it to the Home Sale Worksheet (click the blank area next to the words).

[utah-arizona-taxlady]

Thank you TaxGuyBill.  I think this may solve my issues.  I guess I need to do one of these more than once every few years!  You are the best!  

[abctax55]

Yes.

But if you are asking how to make PS do it, you'll have to wait until a PS user wanders by.  

Perhaps it's something that was working that got "broke" for this year.  That happens, with regularity.

[utah-arizona-taxlady]

Yep, I wondered if that was the case.  Maybe I am entering it wrong.  Been many years since I had to do one of these.